Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd. (SZSE:300029) Looks Just Right With A 25% Price Jump

Those holding Jiangsu Huasheng Tianlong Photoelectric Co.,Ltd. (SZSE:300029) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.

After such a large jump in price, you could be forgiven for thinking Jiangsu Huasheng Tianlong PhotoelectricLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3x, considering almost half the companies in China's Construction industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd

What Does Jiangsu Huasheng Tianlong PhotoelectricLtd's Recent Performance Look Like?

For example, consider that Jiangsu Huasheng Tianlong PhotoelectricLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Jiangsu Huasheng Tianlong PhotoelectricLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Jiangsu Huasheng Tianlong PhotoelectricLtd would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.7%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

When compared to the industry's one-year growth forecast of 26%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Jiangsu Huasheng Tianlong PhotoelectricLtd's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Jiangsu Huasheng Tianlong PhotoelectricLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Jiangsu Huasheng Tianlong PhotoelectricLtd maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Jiangsu Huasheng Tianlong PhotoelectricLtd with six simple checks.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.